How to Get the Bigger Better Deals
August 12th, 2010
Trying to get a good deal in today's market can be frustrating. It might mean making a hundred offers before you get the one that makes sense. And even if you have cash and will close "as is," you still might lose out. Or you might end up with the property and find out later you paid too much or got stuck with a lemon.
So how are experienced investors getting better deals with less effort?
We have found that many of the best deals never even make it to the open market. Much of it happens behind the scenes, word of mouth. Hedge funds and companies with deep pockets pick up the best bank-owned property through bulk purchases, or "tapes." The banks love this because they can move more property at once, even if it means slashing prices. Since these properties never even make it to the open market, it's tough for individual investors to compete with the big players.
So at Real Wealth Network, we decided if we can't beat 'em, we'll join 'em!
We have partnered with those big-time cash buyers who have direct relationships with the banks. We have made an agreement with them that if they give our investors a deal, they can move property more quickly. For example, our Dallas buyers get first pick of properties from their local bank rep. Because they buy in bulk with cash, they get huge discounts that they pass on to our investors.
We also pool funds to pick up almost-compete subdivisions or multi-family properties. Again, this is tough for the individual investor because the price tags are much higher, but the deals are sweeter. For example, we just wrote down a $12.9M FDIC loan to $3M on 27 almost-finished water-front condos in Portland. Investors will make over 40% IRR.
This is truly the greatest wealth transfer in history. Opportunities abound, and together we can make it happen. You don't have to go it alone. Learn from the experts so you can avoid making the same mistakes they made when starting out. That's why Real Wealth Network was created – to bring new and experienced investors together to share information and help each other succeed.
What deals are you working on? How can we help you?
Tags: Dallas, Development, Distressed Properties, Hard Money Loans, REOs, Short Sales
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Troubled Metros Getting Worse, Stable Metros Getting Better
July 30th, 2010
May’s Case Shiller report was more positive than April’s, probably due to a last minute rush for the federal tax credit that expired April 30th. 15 of the 20 metro-areas reported showed improvement, while 7 of the metro areas are still reporting negative annual growth rates.
Las Vegas posted a new index low of -56% from its peak in August 2006, effectively canceling any price gains it had posted since 2000. Detroit home prices are now at levels last seen in late 1994. Overall, average home prices across the United States are back to 2003 levels.
At Real Wealth Network, we like to buy low and cash flow or sell high. Now’s the time to get bargains, but where?
Fiserv, Inc. just released its analysis of home price trends based on the Case-Shiller Indexes. The analysis shows U.S. single-family home prices rose an average of 2 percent in the first quarter of 2010 over the year-ago quarter. This marks the first year-over-year national gain since 2006. However, the stronger markets are carrying most of the gains.
The overall increase was driven by strong price increases in San Francisco Bay Area, San Diego and Washington, D.C. The largest gains were in the San Francisco Bay area, where San Jose home values were up 17.2 percent.
Prices were actually lower in 303 of the 384 metro areas compared to the first quarter of last year. Detroit, Las Vegas and many small Florida markets continued to plummet, with double-digit declines. Provo, Salt Lake City and St. George, markets that historically perform well, posted declines of 13.3 percent, 9.9 percent and 17.5 percent, respectively.
This data tells us that even though some areas have had major price declines and are more affordable than ever, the ride downhill might not be over.
The Fiserv Case-Shiller Indexes forecast that average single-family home prices will fall another 4.9 percent over the next 12 months. But remember, there’s no such thing as a national housing market, only local.That’s like quoting a national weather forecast.
Steep home price declines are expected to continue in markets that have been hurt most by the housing crisis. From the first quarter of 2010 through the first quarter of 2011, average home prices in Nevada, Arizona and Florida are projected to decline 11.1 percent, 10.8 percent and 8.8 percent, respectively.
At Real Wealth Network, we’ve been warning investors for years that the former bubble markets are the most troubled and will continue to be for some time. Investors jumping into NV, AZ and FL may have found great deals, but the deals will likely get even better next year and perhaps into 2012. Additionally, with so much distressed property, there’s more vacant homes and more homeowners trying to sell or rent their properties. That’s too much competition for our taste.
California is a former bubble market but seems to be performing well, according to the data. However, we believe the price increases are not all due to appreciation, but rather a higher priced property now in distress. Prime, Alt A and Option Arm loans are now resetting, and there’s a lot more of them than the subprime. More than half of all option ARMS are i CA. While certain pockets of CA will always be in demand, we still recommend using caution before buying to hold rental property. More foreclosures are coming.
So where do we recommend investing?
Dallas and Cleveland showed gains in the first quarter and are expected to continue their upward trends. Kansas City and Indianapolis are expected to stabilize. These linear markets never had a bubble and never had a burst. Homeowners didn’t lose their nest egg or their “ATM” equity lines. Living expenses are affordable, allowing for more dollars to hit the local economy. The local governments are not losing out on property tax revenue that forces layoffs and budget deficits. And most importantly, the cash flow is still better than the risky markets.
What will you do with this information? What’s your next move as an investor? Share your comments below.
Tags: California, Cleveland, Dallas, Detroit, Existing Home Sales, Florida, Indianapolis, Kansas City, Las Vegas, Market Indicators, S&P/Case-Shiller
Posted in The Real Wealth Report | 2 Comments »
Don’t Get Suckered in Real Estate
July 24th, 2010
A company based in Lodi, California has been sued by investors in Los Angeles Superior Court who claim they were suckered into buying what what turned out to be worthless OREO properties.
(An OREO refers to Other Real Estate Owned – the accounting term for “other” properties banks own because they had to foreclose. REO is the term that has been mistakenly used for foreclosed properties, but an REO is the Real Estate Owned intentionally by the banks.)
The suit claims the company, Fortuno Enterprise, sold investors OREO homes at under-market prices and then promised to help re-sell them for substantially higher prices. The 24 plaintiffs in the suit bought a combined 41 OREO properties in Ohio and Michigan for prices ranging from $25,000 to $31,995 each. The homes were worth $5,000 to $7,000 at the most. The suit claims that “after relying on these representations, Plaintiffs purchased the homes to find that they were not inhabitable and required extensive repairs.”
“The Fortuno Enterprise also promised to find a buyer for the properties at a substantial profit to plaintiffs. The so-called buyers were unqualified and often failed to make payments thereby creating a hold-over tenant requiring eviction,” the allegations continue. “For other plaintiffs, no purchasers could be found and the houses were unmarketable in their current conditions.”
The bottom line is that local investors are now stuck with worthless properties that need substantial repair and are located out of state in undesirable neighborhoods. How could these investors have protected themselves?
Real Wealth Network was actually contacted by this company several years ago. We could smell the fraud through the telephone lines.
Here’s how we knew it was a bad deal:
1. The company was selling the properties “as is.” No rehab was done. An OREO typically sits vacant for over a year. During that time, most of the moving parts get stolen and squatters are known to light fires in the living room to keep warm at night. They also tend to use any room as a bathroom. How could they be resold to an owner occupant at a higher price when no rehab was done?
2. The “sale” was actually going to be seller-financed, which means the investor would hold the note. Just like a bank, the investor would take the property back if the buyer defaulted. A property in “as is” condition would not be a property we’d want to take back.
3. There was no local expert involved to inform the investor of the quality of the neighborhood or the condition of the property and there was no local property manager to help oversee things while marketing for an end-buyer.
4. Fortuno offered us a very large referral fee. They told us they were buying the properties for $5000-$7000 and would sell them to us for $12,000. We could then turn around and sell them to our members for $25,000. We knew immediately that this was fraud and passed on the deal. However, we noticed that other groups were actively selling these properties.
Greed is a powerful force. Both the sellers and the buyers were looking for a quick buck, without considering the consequences. However, I’m sure many of the investors were new to real estate and didn’t know how to perform due diligence.
Here’s a few ways they could have protected themselves:
1. Real estate sales data is public information. Investors could have found out quickly from on-line records that Fortuno had marked up the properties.
2. Technology today allows us to get information at the click of a button. It’s quite simple to get a satellite image of the neighborhood, a street or even a home. Or we can use old technology, like the phone, and ask a local person to drive by and take some photos.
3. Any local realtor will give out a CMA for free, which contains information on comparable sales and the estimated value of the property. Zillow.com may not be always accurate, but will give a list of recent sales in the area.
4. Why would anyone buy a property sight unseen without first getting an inspection? For $350 they could have had a professional check the condition of the property and make a list of all the needed repairs. An independent appraisal could also be ordered for $350.
5. End buyers need to be qualified, or the chances for default are imminent. Haven’t we all have learned something from the subprime meltdown?
There are many simple ways to protect yourself in real estate. It is a hard asset you can see, touch and feel. You can hire independent inspectors and appraisers to evaluate it. If you bypass these common practices, you will get in trouble. As an investor, you are expected to know the basics of investing. This is what the judge might say in this case.
Remember that Real Wealth Network offers free consultation to our members. Let’s take 5 minutes to review whatever deal you are considering. Contact us here.
Here’s a link for more information on this story.
Tags: California, Current Events, Legal & Liability, REOs
Posted in Investor Tips | No Comments »
Dallas Growth Is All Over The News
June 26th, 2010
At Real Wealth Network, we've been talking about how good the income property in Dallas is for years. Now everyone else is too. Check out all the recent headline news on Texas:
DALLAS (Dallas Morning News) Home starts in North Texas have increased by over 50 percent so far this year, and builders and developers are busy snatching up lots across the area.
NEW YORK (CNNMoney.com) The booming Dallas-Fort Worth metropolitan area added more residents during the past decade than any other city in the United States. According to the latest Census Bureau figures, the population of the sprawling Texas metro area grew by about 1.3 million people, or 25%, between April 1, 2000, and July 1, 2009
TEXAS (USA Today) According to Census population estimates, Texas is still highly regarded, having four of the ten fastest-growing cities in the country among cities with populations greater than 100,000. From 2008 to 2009, 11 of the nation's 25 fastest-growing cities with a population size greater than 100,000 people were in Texas.
Frisco was ranked number one while Austin, Dallas suburbs such as McKinney, Carrollton and Lewisville, and oil centers Odessa and Midland ranked high on the list.
AUSTIN (Austin Business Journal) Texas cities were prominent in a new listing done by Forbes.com on the best cities for young professionals. Dallas ranked sixth and Austin not far behind, ranking tenth. The list was determined by factoring in unemployment rate, average wage, affordability and public company presence.
COLLEGE STATION (Real Estate Center) Texas is coming out of the Great Recession and leading the United States in the current U-shaped economic recovery, according to the Real Estate Center's latest monthly review of the Texas economy.
The state's annual employment growth rate turned positive in May 2010 and posted an annual employment growth rate of 0.2 percent for the period from May 2009 to May 2010. The state's seasonally adjusted unemployment rate rose from 7.5 percent in May 2009 to 8.3 percent in May 2010, while the U.S. rate rose from 9.4 percent to 9.7 percent during that period.
Five Texas industries — education and health services, mining and logging, other services, leisure and hospitality, professional and business services — and the government sector had more jobs in May 2010 than in May 2009. The state's actual unemployment rate in May 2010 was 8 percent.
TEXAS (TradingMarkets.com) Medical Properties Trust Inc. purchased three hospitals in Texas for $74 million. The inpatient rehabilitation hospitals are located in Houston, Dallas and Austin and are operated by and leased to affiliates of Reliant Healthcare Partners.
DALLAS (Dallas Business Journal) An $850 million fund to invest in real estate has been launched by Dallas-based Stratford Co. Although the company did not specify what type of real estate investments they will target, Stratford has invested in the Dallas-Fort Worth, Austin, San Antonio and Houston areas. Stratford's website said their strategy involves acquiring land in developing metro areas with strong growth prospects.
FORT WORTH (Fort Worth Star-Telegram) Prices of existing homes in Texas had a 2.2 percent increase while there was a 1.7 percent increase nationwide.
"In more than half of the 100 markets surveyed by CoreLogic, home prices increased from March 2009. The year-over-year increase is a sign of stability," said Mark Fleming, CoreLogic's chief economist.
PALM CITY, Fla. (Policom Corporation) Houston, Dallas and Austin are among the 20 strongest metropolitan areas in the nation, according to POLICOM Corporation's annual economic strength rankings."The top-rated areas have had rapid, consistent growth in both size and quality for an extended period of time," said William H. Fruth, president of POLICOM.
FORT WORTH (Fort Worth Star-Telegram) For the second year in a row, Texas cities took half of the top ten spots in Newgeography.com's annual ranking of the best cities in the nation in which to find a job. Dallas-Plano-Irving ranked fifth and Fort Worth-Arlington seventh. The rankings are based on three-month rolling averages of monthly employment data from the Bureau of Labor Statistics from November 1999 to January 2010.
DALLAS (Dallas Business Journal) Texas has the 12th-lowest home-care costs and other long-term care services in the country, according to Genworth's 2010 Cost of Care Survey. Annual nursing home private rooms cost, on average, $58,765 in Texas, compared with $75,190 nationally. These rates represent an increase of 3 percent in Texas over the past five years and 5 percent nationally.
DALLAS (Marcus & Millichap) Dallas-Fort Worth's economy will strengthen this year, especially in Class-A buildings, according to the 2010 National Office Report by Marcus & Millichap. While sublease space will be the most significant hurdle for top-tier operators, most of the attractive locations should be absorbed by midsummer, said the real estate investment firm.
Among the most significant aspects from the firm's DFW office research report:
- Dallas is expected to lead the nation in job gains during 2010, expecting as much as a 2.3 percent gain;
- office-using employers are projected to add 16,000 jobs, a 2.1 percent boost;
- development will tick down to 1.6 million sf in 2010;
- rent declines will moderate this year as employment gains traction.
DALLAS (Dallas Morning News) Indicators of recovery in North Texas are beginning to pop up, according to the Federal Reserve Bank of Dallas' latest Beige Book Survey. The residential real estate sector and the retail, staffing, energy and high-tech manufacturing sectors are reporting higher demand for goods and services.
The survey of local professionals reported that housing contracts were improved, and builders said sales in first quarter 2010 were strong. Additionally, apartment demand was described as "meaningfully positive."
Representatives for commercial real estate reported that the market is near the bottom and note a drastic reduction in rental rates on renewals.
Retail sector sales increased, as did the raw materials price for steel.
DALLAS (Dallas Morning News) With more than 9,000 apartment units currently being built, the Dallas-Fort Worth area has more apartments under construction than any other U.S. market. Most of these are in the Allen-McKinney, central Dallas, west Plano and Frisco markets.
Thanks to net apartment leasing of over 6,200 units in first quarter 2010, the high rate of construction may not be a bad thing. Demand in the first quarter was the best in more than two years and compensated for the entire net apartment leasing declines in 2008 and 2009, according to MPF Research.
MPF Research predicts that overall apartment vacancies will decline slightly this year from current levels of less than 12 percent.
INVESTING IN DALLAS? While great deals can be found in Dallas, there are many areas to avoid. It's important to work with a local company that specializes in investment property. Our teams at Real Wealth Network get steep discounts by buying in bulk with cash directly from the bank. The properties are fully rehabbed in like-new condition and rent ready for a turn-key investment. The homes are in areas where the builders are back in business, but we are getting the properties far below the cost to build. This creates instant equity and cash flow for our members.
If you'd like to see some of our better-than new, discounted, cash flowing, turn-key properties in Texas, give us a call or check it out.
What articles have you seen about Dallas?
Tags: Dallas, due diligence, Market Indicators
Posted in Investor Tips | 2 Comments »
Low Existing Home Sales in the North East, with NYC showing the Greatest Shadow Inventory
June 22nd, 2010
Existing home sales data for May is in, and the stock market didn't like it. According to the National Association of Realtors, sales dropped 2.2% to a 5.66 million annual rate in spite of the expiring federal tax credit incentive. This was a surprise to economists, who expected a 5% increase.
Low sales in the Northeast, a whopping 18% drop, skewed the numbers. Sales were actually up 0.5% in the South, 4.9% in the West, and remained unchanged in the Midwest.
There is marked improvement in sales since last year at this time, in spite of high unemployment figures. Year over year, existing-home sales rose 19.2% – a result of improved affordability due to a combination of slashed home prices, the federal tax credit and historically low interest rates. The average 30-year mortgage rate was 4.89% in May, down from 5.10% in April, according to Freddie Mac.
The median price for an existing home was $179,600 in May, up 2.7% from May 2009.
Inventories of used homes decreased by 3.4% at the end of May to 3.89 million available for sale. That represented a 8.3-month supply at the current sales pace, compared to a 8.4-month supply in April.
However, these numbers do not reflect the mounting "shadow inventory" outlined in a recent report from Standard & Poor's/Case-Shiller Home Price Indices. Shadow inventory is defined as homes that are 90-plus days delinquent, in foreclosure, or bank-owned (REO) but not yet on the market. It also assumes that 70 percent of recently "cured" loans will ultimately redefault (a U.S Treasury estimate.)
The S&P report concluded that it will take an average of 34 months to sell off the shadow inventory at the current pace of liquidation. The greater New York area showed the highest amount of shadow inventory with 103 months, then Miami (61 months) and Boston (58 months).
It appears that the cities that have been making foreclosure headlines may have already hit their peak in 2008/2009. Phoenix shows the lowest supply of shadow inventory at 18 months, followed by Las Vegas (21.4 months) and Detroit (23.3 months). Other metro markets where shadow inventory was below the national average were Minneapolis (23.5 months), San Diego (28.8 months), San Francisco (29.2 months), Denver (29.7 months) and Portland (32.5 months).
What does this mean to you as an investor? How will you use this data? Share your thoughts in the comments box below.
Tags: Existing Home Sales, REOs, S&P/Case-Shiller
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Is it a Good Time or a Terrible Time to Buy?
June 5th, 2010
Before buying any property, always ask yourself, "Why am I buying this?" This seems obvious, yet many buyers later regret not asking this simple question.
The best reason to buy property today is for cash flow. There has never been such a perfect combination of low home prices, low interest rates and high rents. It makes a lot of sense today to buy a home if it's cheaper to own it than to rent it. There are many areas in the country where this is possible, and both home owners and investors should take advantage of this rare opportunity to increase cash flow.
However, in high priced markets along the coasts, the opposite is true. It's still cheaper to rent than to buy, which means there may be more price adjustments on the way. Low interest rates have made it possible for people to afford more expensive homes, but what will happen when rates creep up? They have been held artificially low since the Fed started buying mortgage backed securities, but that program is now over. Even a half percent increase in rate can price buyers out of the market.
Take a look at Walnut Creek, California. In 2006, the median home price was $729,000. Today, it's $526,000. The federal tax credit boosted the values up a bit from a low of $510,000 last year at this time, so some buyers think the upward trend will continue. But they may not be considering that the average income in Walnut Creek is $82,000. An affordable mortgage should be only 3 times the annual income, not 6.5. For Walnut Creek to become affordable, the median home price would need to be $246,000. When interest rates rise, but incomes don't, the result is a downward pressure on prices.
Compare these numbers to Dallas, Texas, where some neighborhoods have a $90,000 median income, $135,000 median home price and $1450 median rent.
If you were to rent in Walnut Creek, a $526,000 home would lease for about $2000 per month. That's $1000 less than the mortgage, taxes, insurance and basic home maintenance would have been. Even with tax deductions, you'd still pay less to rent and would not be subjected to the risk of potentially further declines in prices.
However, even if it is more expensive to buy than rent in places like Walnut Creek, it still might make more sense for some people. These buyers may be seeking stability, tax relief, or a chance to renovate to their liking. As long as they plan to stay put for a minimum of 10 years, they could find themselves ahead of the game.
The government is attempting to create inflation to combat deflation. This is done by expanding the money supply. Even if the median home prices dropped another 20% to $420,000 during this deflationary period, it could experience huge gains once inflation kicks in. With just 5% inflation, that home could be worth over $700,000 10 years later.
Leveraged real estate has always been the best hedge against inflation because you can pay your loan back in less valuable dollars. You don't have any more spending power, but at least you've kept up with times. This means you've got to be able to hold on to the property for an extended period of time to reap the rewards.
If you're buying investment property, once again, you must ask yourself, "why?" Income that far exceeds expenses is a great reason. Selling the home for profit after making improvements also works. But buying on speculation, simply hoping that prices will rise again can be a huge mistake – especially if the property has negative cash flow at the get-go.
If you bought the $526,000 home in Walnut Creek as an investment, you'd put $125,000 down and then pay $12,000 in negative cash-flow. In the long run, the prices very well could go up, but then you'd have to add up the cost of lost funds along the way.
Whereas, had you bought in a cash-flow market like Dallas, you could have bought 4 properties with $125,000 down. The cash flow would be $300 per property per month, or $14,400 annually positive cash flow.
One strategy would be to take all that cash flow to pay off the 1st home in 8 years, and the 2nd home 4 years after that. That means in 12 years you'd have $31,200 in annual cash-flow, 2 houses paid off (valued at $300,000 not including inflation) and 2 more houses that could be paid off in 4 more years. (For a total equity position of $600,000 and $48,000 annual income, not including inflation.)
Compare these numbers to the Walnut Creek home that may or may not have inflated to $700,000 in 12 years. Subtract the $140,000 paid to negative cash flow so the real value to you is $560,000, but the loan would still be over $400,000. That's a $160,000 equity position and still a negative cash flow position.
The difference between the high priced markets and the cash flow markets is significant. And all this, just because you asked, "Why?"
Tags: California, Existing Home Sales, Inflation, Market Indicators, Real Estate, Strategic Planning
Posted in Investor Tips | 1 Comment »
Mixed Data This Week – Existing Home Sales Up, Along with Inventories
May 27th, 2010
This month's data showed several dynamics: sales are up, prices are up, but inventory is also up. That means more folks are buying, probably due to the expiring $8000 federal tax credit, while more properties are hitting the market.
Existing home sales were up 7.6% to a seasonally adjusted annual rate of 5.77 million in April from 5.36 million in March, according to data released Monday by the National Association of Realtors.. That was better than the forecasts of 5.62 million, and comes just after a 7% gain in March.
Regionally, the Northeast was the big winner, with a 21.1% rise in sales. The Midwest was next with a 9.9% gain in sales, and 8.6% in the South. However, the West saw a decline of 6.2%.
While more people were buying, more inventory hit the market at the same time. The raw number of homes for sale rose 11.5% to 4.044 million from 3.626 million in March. Supply is up 2.7% from last year at this time. The months supply at current sales pace indicator of inventory rose to 8.4 from 8.1.
Median prices rose 2.1% to $173,100 from $169,600 a month earlier. They're up 4% from the year-ago level of $166,500. But before you celebrate, consider that these price increase are likely due to prime loans defaulting, and thus higher priced homes hitting the distressed seller list.
More conflicting data:
One day after NAR's existing homes sales numbers were released, the S&P/Case-Shiller National Index released its 20-city home price index. In this report, U.S. home prices posted a 2% gain in the first quarter from a year earlier, but were down 3.2% from the end of 2009.
The national data are released quarterly and are on a two month lag, but the monthly numbers showed a similar pattern. The closely watched 20-city home-price index rose 2.3% in March from a year earlier, but was 0.5% lower than February.
Cleveland posted the largest jump in prices from the prior month, while Las Vegas posted the biggest drop. Eight cities — Atlanta, Charlotte, Chicago, Detroit, Las Vegas, New York, Portland and Tampa — posted new index lows.
But, the West Coast has shown some strength. Prices in Los Angeles, San Diego and San Francisco are all up more than 7% from recent lows. San Diego, in particular, has stood out with 11 consecutive months of increasing home prices. Again, this phenomenon is likely due to higher priced homes hitting the distressed-home market.
What to make of all this? The "shadow" inventory seems to be finally hitting the market, albeit slowly. The banks can only hold off the inevitable for so long through trial modifications and delayed auctions. With sub-prime defaults behind us, increased home prices may be an indication of defaults in the higher priced prime mortgage market. California is the best example of that with sales down, but prices up.
As more foreclosures hit the market, there will be downward pressure on prices in the highly distressed markets of CA, FL, NV and AZ. Without the federal tax credit of $8000 to entice buyers, there could also be a decrease in buyers. Areas like Cleveland and Dallas, that experienced minimal overall price declines, will fare the best as fewer prime borrowers will be tempted to walk away from negative equity positions.
Tags: Current Events, Dallas, Existing Home Sales, Housing Starts, Market Indicators, S&P/Case-Shiller
Posted in Investor Tips | No Comments »
Flipping a Ten Home Subdivision
May 23rd, 2010
There is always opportunity in the midst of crisis. Right now, one of the greatest opportunities is picking up almost-complete development projects. Most small builders were in high-cost construction loans that made sense 3 years ago, but don't work today. The cost to build is far higher than the price per square foot of bank-owned properties. Builders just can't make the numbers work, and many are reluctantly handing the projects back to the bank.
A local contractor found this 10 single-family home subdivision in the Oakland Hills with views of the Bay. The builder owed over $7M in private loans and was holding on by a thread. Even if he were able to complete the project, it would not pencil out after paying off the debt. We were able to short the loan to $1.5M and take over the project. We needed to raise $3M to complete the project, so we decided to give our investors 40% of the profits. Conservative projections show a 47% return for investors. The heavy work was already done. We expect to have these on the market by this summer.
We started the Network Capital Fund last year as an opportunity for Real Wealth Network members to both borrow and lend to each other, and do it safely and legally. Some of our members have capital they want to invest, but they want to remain passive. Other members have the skills, expertise and ability to find incredible deals, and need cash to acquire them.
Network Capital Fund pools investor funds and then lends it out to local rehabbers at 12% interest rate and 6 points for a 6 month term. This means the capital gets recycled twice, increasing returns for investors. In some cases, the rehabber will also split profits with the lenders. The borrowers must have experience in rehabbing homes. Every deal they bring to Network Capital fund is scrutinized with local appraisers and inspectors. Once the deal is approved, the funds are released in phases, with each phase being signed off on before the next phase of funding is releases.
If you find great deals, bring them to us and we'll help you fund it. If you want to put your money to work, let us know here!
Tags: Development, Distressed Properties, Flipping, Hard Money Loans, Private Money Investing, REOs, Short Sales
Posted in Investor Tips | No Comments »
Which State Has the Most Foreclosures?
May 21st, 2010
What happens when a government agency is created to guarantee mortgages? The same thing that happened with the FDIC. It goes broke! Banks that sold loans to Fannie and Freddie didn't have to scrutinize too carefully because the loans were government-backed! Personal responsibility once again gets trumped by government backed guarantees.
How did that work out? Fannie just asked for another $8B, just after Freddie received $10B. But this won't be the end of it. Right before Christmas when no one was paying attention, the government voted to lift the $200B limit of the Fannie/Freddie bailout. The funds are officially unlimited.
As infuriating as that may be, you might as well take advantage of some of the bailout dollars and lock in low interest loans. Our lenders in Birmingham, Indianapolis and Dallas can finance up to 10 properties! Get a free quote from one of our preferred lenders.
THE MARKET
The government can't hold foreclosures back forever. Shadow inventory may finally be hitting the market. The number of repossessed homes in April was at an all time high of 92,432 according to RealtyTrac, an online marketer of foreclosed properties. That's an increase of 45% from last year at this time.
However, the total number of foreclosure filings – notices of default, auction notices and bank repossessions — fell by 9% from March to April, and 2% compared with April 2009. This data would indicate that notices of default and auction notices are subsiding, but in reality, these notices are just being postponed while lenders work through a backlog of delinquent properties. It's not uncommon that homeowners who haven't paid their mortgage in a year have yet to see a notice of default.
The four states with the highest run up in prices during the boom are getting hit the hardest during the bust. Nevada continues to rank as the worst-hit foreclosure state, with one of every 69 households receiving a filing. That's nearly 6 times the national rate of 1 in 387 households. Arizona had the second highest rate, and Florida the third. Even though California came in fourth in ratios, the Golden state had the largest actual number of filings – nearly 70,000. Michigan, where the vast number of foreclosures can be traced to job losses and economic challenges, recorded more than 19,000.
The metro area market that recorded the highest rate of foreclosure filings in April was Las Vegas, where one of every 60 homes was delinquent. Second was Modesto, Calif., with one in 101, and third was Merced, where one in 104 homeowners was in some stage of default.
NV, AZ, FL, MI and CA are also the states where mortgages are the most upside down as a result of plummeting home prices. These markets are now suffering from an onslaught of "strategic defaults," in which homeowners who could afford the mortgage choose to walk away from massive debt obligations on assets that have lost value.
Rather than try to save these homes that the folks who bought them never could afford in the first place, the government should step aside and let eager investors and first time home buyers dive in and save the day. The home owners wouldn't necessarily lose their homes. Instead they become tenants, which is really what they were to begin with.
Tags: Current Events, Fannie, Financing, Foreclosures, Freddie
Posted in The Real Wealth Report | No Comments »
Who Is Spending Your Money?
May 19th, 2010
As you probably noticed in last week's ezine, Harry Dent is expecting a major down turn in Dow Jones Industrial Average this Fall. We got to see just how volatile the stock market can be last week. It's astounding how a market can be so over-bought, manipulated and volatile, and yet still manage to rally. The masses are certainly quite trusting in the "Powers That Be."
If you are like me and not so trusting, this is a great time to self-direct your retirement funds and put them into something more stable while the economy shakes out. We have some very clear indicators that housing hasn't bottomed out in the high priced markets. I personally only recommend short term holds in those areas.
But many of the linear markets are holding steady and even moving upward in pricing. In some of these markets, the homes are virtually free. All you pay for is the rehab. I just don't see how prices can go lower than that. In many cases, those homes rent monthly for 2% or more of purchase price. The returns are upwards of 14% and with financing, ROI can be as high as 35%. This is a steady and solid income stream that you won't see from the self-serving "Powers That Be" on Wall Street.
Speaking of which…
Did you find your blood boiling at the news that your taxpayer dollars are going to help bail out Greece? If not, perhaps you weren't aware that 9% of the country's population works for the government (1M out of 11M). These government employees get paid for 14 months of the year instead of 12, retire at age 53 and enjoy a pension of 80% of their salary. It's no wonder they're putting up a fight to keep things the way they are, and the U.S. is happy to enable…
It's obvious that this kind of spending is unsustainable, so why would we reward it? Well, we asked that same question when our leaders bailed out Goldman Sachs, Wall Street, GM, Chrysler, Fannie and Freddie.
The real question is how do we control a run-away government who doesn't listen to the needs of its people and spends taxpayer money on mismanaged companies and foreign countries in the midst of its own major economic crisis? It's almost as if the decisions being made are deliberately meant to destroy us.
The answer: Abolish the Federal Reserve. The Fed is a private corporation run by the heads of the top banking and Wall Street companies. It is not federal, it's not a bank, and it has no reserves. But it does have the power to manipulate our economy to best serve its member's interest.
The founders of the Federal Reserve and the central banking concept are from Europe, thus the decision to bail out their own is not surprising. After all, the Euro was created to compete against the dollar and eventually overthrow it as the world's reserve currency.
Some senators have asked for an audit of the Federal Reserve, but so far it has come back as "impossible" and harmful to the security of the United States. No surprise, since most of Washington has been bought by these guys too. The Federal Reserve gives politicians the ability to create dollars for anything they need to stay in office. It's been happening since the Fed was formed in 1913. Who ends up paying for all the created money? We do, through inflation.
What can we do? First, protect yourself by getting your money out of dollars. Second, get the facts and then expose the truth to the struggling middle class, before it's too late.
United, we are strong! Unaware, we are bulldozed.
Tags: Current Events, dollars decline, federal reserve, Market Indicators
Posted in Investor Tips | 1 Comment »
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